How we can cut $2B in excess bureaucratic costs in the USA by cutting some unused regulations.
Here, I will outline how we could save approximately $2B per year in the US economy though a simple law change and regulation reduction that, to my understanding, would have no downside. In summary, remove the remaining legacy bureaucracy associated with the Bayh-Dole Act and unleash the free market to innovate instead of fill in paperwork.
My hesitations about sharing this
I have some major hesitations (see my last blog post) about what is happening in the current political climate. However, I believe that there is a unique opportunity in history to actually cut some excess regulations. Furthermore, I believe I have a unique perspective to lend given my experience in industry and academia and dealing with patents and NIH grants. So here we go.
The Peer-review process
First of all, I believe strongly in the benefits of the peer-review process to the growth of the US economy. In the USA grant award system, applicants must compete and only the strongest applications are funded. I have failed many more times than I have succeeded in applying for grants. I want to emphasize that I believe that this peer-review grant process is the engine of the US economy. So we absolutely do not want to lose that, it is an essential engine of progress. So what I am talking about here is minor tweaks to a very good system! Not scrapping the whole thing! Let's be SUPER clear about that!!!
To those of you that have applied, you know that it can feel like a gauntlet. Here is a pictorial representation that ChatGPT and I came up with to convey the feeling of applying for a grant:
If you make it through all the peer-reviewers trying to poke holes in your application, then you get to the promised land of a funded application!
My experience with NIH SBIR grants and inventions
My company Milo Sensors received a $223k Phase I SBIR award and a $2.2M Phase II SBIR grant from the US Government. I have also been a reviewer in more than four SBIR panels. I also am author on multiple patents, some of which were a result of inventions obtained using federal funding, and therefore fell under the Bayh-Dole Act. So I have seen the system from the perspective of a small business owner and inventor and also from the perspective of an independent reviewer evaluating other applications. Overall, all the reviewers I have met have been extremely professional and have prioritized good science and technology over anything else. The Program Officers and NIH employees that I have dealt with have similarly been professional and prioritized the best science without any discernable signs of major bias. So the system overall is working at funding good research and early-stage technology development. What I want to do is make it more efficient.
The Bayh-Dole Act
In 1980, the US Congress passed the Bayh-Dole Act (PL 96-517, Patent and Trademark Act Amendments of 1980). Before this, inventions that arose out of federal government grants were owned by the federal government. The US Government was sitting on around 30,000 patents. As you can imagine, the government was not very efficient at commercializing these inventions as compared to the free market. The Bayh-Dole Act changed the law and allowed private companies to own patents that arose from federal government funding. The results have been widely lauded as leading to large-scale innovation within the private sector, leading to life-saving therapies and quality of life improving technologies. So overall, the combination of federally funded research together with private innovation has been a huge benefit to society. It all sounds great, right? Except, the Bayh-Dole Act left some bureaucratic claws in the private industry that are still holding things back.
The remaining claws
At the time the The Bayh-Dole Act was passed, it must have been somewhat scary to relinquish control of patents away from the government and turn it over to the free market. Some of the concerns included "what if a company uses federal funds to invent a new drug that cures a major disease, and then charges too much money for it?" A fear of price-gauging for life-saving medicine is a reasonable fear. However, it is also worth considering that this would only apply to drugs that did not exist previously and would only exist for the lifetime of a patent (around 20 years). This reminds me of a brilliant bit:
https://www.youtube.com/watch?v=D_Txjv30XDU&t=7s"how quickly the world owes him something he knew existed only ten seconds ago." Louis CK
In any case, I believe that it is understandable that some claws remained in the original 1980 Bayh-Dole Act. Those claws included "march-in rights" which enable the federal government to get a royalty-free license to use the technology. The idea was that this could enable some protection against price-gouging. However, we now have 45 years of data since it was originally passed that we can examine, to examine the cases where the government exercised the march-in-rights.
Surprise: it has never happened!
In the 45 years since the Bayh-Dole Act was passed, the government has exercised march-in-rights exactly ZERO TIMES. Zilch, nada, goose-egg. So every year, thousands of federally funded researchers fill in millions of pages of paperwork... all... for no actual benefit. As a scientist, I believe in examining the experimental evidence. Here, we have 45 years of data, and I was shocked to learn that march-in-rights have been exercised zero times. With billions of dollars of federal funding annually and thousands of patents, a zero is a very strong scientific data point!
Consequences of the Bayh-Dole Act
So what's the big deal with march-in-rights? It's not a terrible thing right? It protects people? Well, this is a fallacious argument, because it ignores the real costs that adding bureaucracy adds to the development of technology. As a small business owner and inventor, I had to interact directly with the iEdison website (Bayh-Dole compliance portal) and associated laws. It was a disaster. It was a major drain on my resources. I estimate that I spent approximately one month of my time dealing with: communicating march-in-rights to investors who were scared about it, filling in iEdison paperwork and managing the weekly (yes, weekly) emails I got from iEdison warning me about some new red flag in their system (e.g. a patent reporting deadline or whatever), adding statements to patent filing, making sure it all was squared away, etc, etc. It was actually a pretty big headache. In fact, the reason I wrote this article was through thinking deeply about where I saw opportunity to reduce government waste based on my unique experience. That is one month of my life that I wasted. I could have been doing other more productive things like developing technology instead of doing this busy-work. If you can't tell, I hate busy-work.
I am not the only person that has to deal with this headache. Every recipient of federal research dollars has to do it. That includes: SBIR grants (small businesses), Universities, and other research institutes. If you add up 1 month of wasted time per grant, it becomes quite a large number. I estimate around $2B/year in lost costs.
At Universities, there are Bayh-Dole compliance experts, that could probably be using their brains to do other more important work such as developing and licensing patents. At companies, the same thing. The resources allocated to compliance are a drain on operating costs. Within the federal government itself, there are real costs associated with Bayh-Dole compliance. There are probably dozens of people who spend their time dealing with Bayh-Dole compliance that could be doing better things with their time. There are direct software development and server hosting costs associated as well, for example the iEdison portal.
My suggestions
Given that Bayh-Dole Act march-in-rights cost resources to comply with, and given that the march-in-rights have been exercised zero times in 45 years, I think it is time to rewrite the law.
I suggest that we enable small businesses and universities, and research organizations, and all recipients of federal funds, to have full rights to patents and inventions that they develop, and that we eliminate the Bayh-Dole-Act march-in-rights. You could call this a "free and clear" system.
I suggest that we eliminate the iEdison program - let the free market own IP without burdensome paperwork and disclosure requirements. Therefore, in my opinion the entire Bayh-Dole act and iEdison program is useless and could be cut without any harm to the US government.
Remaining march-in-rights
If Bayh-Dole march-in-rights are eliminated, as I suggest, then the Federal Government would still retain some march-in-rights. Under 28 U.S.C. § 1498, the U.S. government can use or authorize others to use a patented invention without the patent holder’s consent, as long as the patent owner is compensated with "reasonable and entire compensation" through a lawsuit in the Court of Federal Claims. This law is often used for military technologies and public health needs but does not grant the government ownership—only the right to use the patent. Separately, the Defense Production Act (DPA) allows the government to compel companies to prioritize federal contracts or expand production of critical technologies during emergencies, such as wartime or public health crises. So there are still some claws remaining against price-gouging or national security.
Conclusion
To improve the efficiency of federal grant funding process, the following actions should be taken: iEdison, the Bayh-Dole Act, and associated laws, should be replaced with a "free and clear" system whereby grant awardees are free and clear to develop IP as they see fit. I estimate that this would save tens of millions of dollars of federal funds and $2B/year in increased productivity among awardees, including universities and small businesses and free up innovators to innovate rather than fill in paperwork.
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